The New York Stock Exchange quietly announced last week that it would end its practice of requiring companies to report all their program trading — a move that helps shield large investment banks, particularly Goldman Sachs, from public scrutiny.

theinternationalforecaster.com; Some quotes of Bob Chapman from "World Financial System In A State Of Insolvency" 21 February 2009: Today’s financial system is in a state of insolvency. The best example is the highly volatile combination of US dollars and dollar denominated assets and debt. For those of you who missed it the Dow Jones removed all stocks in the industrial average priced under $10.00, effectively eliminating the crippled financial sector. Had they been left in the Dow would be lower and would have broken down below 7286. This is just more flagrant manipulation. Almost every day we see it in a number of markets. This week the Fed and the Treasury tried to push the stock market up and the commodities and gold and silver markets down but to no avail.http://theinternationalforecaster.com/International_Forecaster_Weekly/World_Financial_System_In_A_State_Of_Insolvency

A tiny minority of a new breed of electronic trading firm is driving almost three quarters of all US equities trading volume and generating $21bn in annual profits doing so, Tabb Group, a consultancy, said on Friday.

The disclosure is one of the first attempts to quantify the impact of so-called “high frequency” trading firms that have quietly grabbed a huge slice of trading in the world’s equity markets.

Some of the trading firms – such as Getco, Peak6, RGM Advisers and Hudson Bay Trading – are far from household names in the markets. Many are based in Chicago and grew out of the city’s options trading pits.

However, they appear to have built up such a significant presence in the markets that they look set to eclipse familiar Wall Street names in their collective influence. Such firms have grown especially quickly as they filled a gap in the markets left by hedge funds.

They typically employ trading strategies that are based not on company earnings prospects and other fundamentals, but on arbitraging minute differences in share prices and trading speeds – known as latency – between exchanges and other trading venues.

“The incredible capabilities offered by technology have given meteoric rise to a relatively few high frequency proprietary trading firms that now wield far greater influence on the markets today than most people recognize,” he added.

Tabb estimated that such firms, which include the new breed also known as “electronic liquidity providers”, represent about 2 per cent of the 20,000 or so trading firms operating in the US markets. But they accounted for 73 per cent of all US equity trading volume.

Trading venues have altered their fees structures to attract such firms, which often look for platforms to offer monetary incentives to encourage firms to post liquidity with them in so-called “maker-taker” fee models. The London Stock Exchange this month abandoned a maker-taker fee model introduced only in September last year, a move that its smaller rivals such as BATS Europe are likely to welcome as it could drive more high-frequency traders to them.

The firms included proprietary trading desks for a small number of major investment banks, less than 100 of the most sophisticated hedge funds and hundreds of “the most secretive prop shops, all of which operate with one thing in mind: capture profit opportunities by being smarter and faster than the closest competition”, Tabb said.

Firms engaged in high frequency trading (HFT) use complex computer algorithms to drive their trading strategies, and guard them jealously. The value of such algorithms was exposed this week when US federal prosecutors charged Sergey Aleynikov, a former Goldman Sachs computer programmer, with stealing computer code from the bank’s HFT business.

July 10 (Bloomberg) -- JPMorgan Chase & Co., Goldman Sachs Group Inc. and other banks may be poised for another jump in trading revenue when they report second-quarter earnings as fees in some markets remained near record highs.

The CHART OF THE DAY shows the average so-called bid-ask spread on the most actively traded credit-default swaps on North American companies. Banks, whose profit in part is driven by the gap between where they can sell the contracts to one party and buy them from another, are quoting bid-ask spreads that on average are 49 percent higher than the average during the past 2 1/2 years, according to London-based CMA DataVision.

“This is a trading quarter, and the equity investors who thought last quarter was a one-time event are going to say, ‘Wow, we’re getting into a fixed-income cycle,’” Sanford C. Bernstein & Co. analyst Brad Hintz said in a Bloomberg Radio interview this week.

The average bid-ask spread on the companies that are a part of the Markit CDX North America Investment Grade Index Series 12, a benchmark for the credit-default swaps market, was as wide as 14.9 basis points on April 10, down from a record 22 basis points on Oct. 13, compared with an average of 8.6 basis points since the beginning of 2007, CMA data show. A basis point is 0.01 percentage point.

Goldman Sachs, JPMorgan and Barclays Plc are among banks poised to post big trading gains, Hintz said in the July 6 interview. “Even Morgan Stanley, which is holding back its risk, should do well on the trading side,” he said.

Bid-ask spreads don’t account for profit or losses traders make on changes in asset values. They also don’t account for low volumes or poor market liquidity that tend to drive the bid-ask wider and can hamper a trader’s ability to collect such wide spreads. Revenue also may be eroded because banks must mark up the value of liabilities when the lenders’ creditworthiness improves.

To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Bryan Keogh in New York at bkeogh4@bloomberg.net

Goldman Sachs, the Wall Street leviathan that is heavily invested in the cap-and-trade carbon market scam, has admitted it has developed and used software that can manipulate such financial markets.

The revelation came during proceedings in a legal case with enough plot twists to make even John Grisham proud; it was made, not by Goldman, but by an assistant U.S. Attorney.

"(B)ecause of the way this software interfaces with the various markets and exchanges, the bank has raised a possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways," Joseph Facciponti told a federal magistrate in an unusual Saturday afternoon bail hearing -- and not just any Saturday afternoon, but the Fourth of July.

Facciponti's comments came at a hearing for Sergey Aleynikov, a former Goldman Sachs programmer, who had been arrested the day before, disembarking from a plane at Newark's Liberty International Airport. Aleynikov is accused of absconding with the code for the Goldman program and uploading it to a server in Germany, shortly before leaving the firm to take a job with a Chicago start-up for three times his $400,000 a year Goldman salary.

Aleynikov denies the charges.

Goldman uses the program for all of its trades

While Facciponti's remarks that the Goldman computer program could "manipulate markets in unfair ways" have received attention in the financial press, another, almost equally important statement made by Facciponti has gone virtually unnoticed. According to transcripts of the hearing, as posted at the Wall Street Journal:

"What the defendant is accused of having stolen from the investment bank (later identified by defense counsel as Goldman Sachs) is their proprietary, high-quantity, high-volume trading platform with which they conduct all of their trades in all major markets in the United States and other places." (emphasis added)

In other words, Goldman already uses the software. Implicit in Facciponti's court statements is that Goldman can be trusted not to manipulate markets but others can not.

Even if Goldman hasn't actually rigged markets, the program could be used to give Goldman other unfair advantages; business commentator and author of Bailout Nation Barry Ritholz outlines some possibilities at his blog:

Theoretically, this would allow GS to buy (or sell) stocks, selling (or covering) them back to the now compromised trader towards the end of their purchase (sale). Or, they could take a position, assuming there was more flow behind the initial order. Or, they could arbitrage a few fractional cents each trade.

Coincidentally or not, Bank of America analyst Guy Moszkowski says that Goldman Sachs is on pace this year to beat its trading-revenue record in 2007.

Goldman wouldn't manipulate markets, would they?

But what are we to make of Facciponti's comment that "there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Which leads the inquiring mind to ask, How does Goldman know that its program has that capability?

Goldman, being the good corporate citizens they are, would never have used it that way.

Or would they?

A recent article by Matt Taibbi in Rolling Stone accuses Goldman of manipulating markets to create speculative bubbles, including the internet bubble, last year's crazy ride in oil prices, and the current economic bust initiated by the sub-prime mortgage meltdown.

In his thoroughly-researched and well-sourced book, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street ($27.95 Doubleday), William D. Cohan writes of a crucial moment in that meltdown. He quotes an unnamed Bear executive describing how they were trying to value, or "mark", mortgage-backed securities, a process by which the SEC required that they averaged the highest and lowest marks provided by other firms. The executive said the marks were coming in at 97 or 98 cents on the dollar, when Goldman Sachs pushed the market over the cliff:

"Suddenly we get these marks. Except these marks are not 98 to 97. They go from 98 to 50 and 60... and that is game f****ing over. By the way, the firm that sent us the 50 made a s**t pot full of money in 2007 shorting the f***ing market."

The effect of the new marks from Goldman Sachs ... was immediate and devastating...

With the hindsight of a few months, the Bear executive's fury at Goldman had not abated. "If everybody's getting overwhelmed by a tsunami and a couple of guys are making a f***ing fortune, that usually is grounds for at least taking a closer look to see what is going on, as to why they were making a fortune... I just told you a story that as about as relevant and about as potent as nitroglycerin, if you ask me." -House of Cards, p 337

And, suddenly, mortgage-backed securities were melting like cheese on a summer picnic's hamburger.

Goldman defended their slashing of subprime securities prices in half, almost overnight, and a Goldman official told Cohan the firm "did not make nearly as much money in 2007 betting against the mortgage market as people think it did."

Just as Goldman's finger may have helped pop the housing bubble, its fingerprints are all over the start of that bubble as well, through its influence on Clinton-era policies.

Economist Dennis Sewell noted in The Spectator magazine:

The main thrust of the Clinton housing strategy was to increase home ownership among the poor, and particularly among blacks and Hispanics... standing in the way of the realisation of this dream were the conservative lending policies of the banks, which required such inconvenient and old-fashioned things as cash deposits and regular repayments - things the poor and minorities often could not provide.

The Clinton administration initiated its strategy through reforms to the Community Reinvestment Act, accounced in December, 1993.

Well-respected analyst Meredith Whitney has noted that home ownership in the U.S. "had been 64% prior to 1994 for as far back as the eye can see." After the new government policies, that rate climbed to 69%. Whitney told Business Week last December that she expects the financial crisis caused by the mortgage meltdown to last through mid-2010 because, "For 15 or 20 years cheap credit was extended to a lot of people who were not worthy. Now you've got to resize that business back to traditional, normalized credit."

Sewell in his Spectator article, wrote that to make sure the new policies were implemented, the administration set up "a network of enforcement offices across the country, manned by attorneys and investigators, and primed to spearhead an assault on the mortgage banks, bringing suits against any suspected of practicing unlawful discrimination, whether on the basis of race, gender or disability."

In other words, the Clinton administration, using the full force and authority of the U.S. government, bullied lenders into making questionable mortgages, accelerating -- if not initiating -- the housing bubble through its CRA reforms.

Goldman Sachs played a major hand in these Clinton-era financial policies through Robert Rubin, former Co-Chairman of the firm, who actually announced them on December 8, 1993. Rubin boasted that, "CRA reform will generate billions of dollars in new lending and extend basic banking services to the inner cities and to distressed rural communities around the country." (Emphasis added.) Rubin was then Clinton's influential Assistant for Economic Policy and later went on to become an even more influential Secretary of the Treasury.

Taibbi wrote in Rolling Stone:

During his (Robert Rubin's) tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

Taibbi adds that other Goldman graduates played a major hand when the market crashed, including another Goldman-ex turned Treasury Secretary, Henry Paulson:

Paulson elected to let Lehman Brothers -- one of Goldman's last real competitors -- collapse without intervention... The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

The next bubble?

From the mortgage bubble, Goldman learned an important -- and very valuable -- lesson: Government policies, especially if shaped by a network of former Goldman officials, could be used to create vast profits, indeed whole markets.

This leads us to what Taibbi calls "the new game in town," cap-and-trade. Or cap-and-tax, if you prefer.

It is a potential trillion-dollar market, that had its beginnings in Chicago about the time that Bill Clinton signed the Kyoto Protocol, even though the U.S. Senate had spurned the international agreement by a 95-0 vote. And Barack Obama has been involved in the potentially lucrative market almost from the start.

The Chicago Climate Exchange was formed to implement the carbon emissions trading gold rush Kyoto would have opened up; however, when President Bush withdrew from the protocol -- forever earning George Soros' enmity -- it looked like the exchange was dead. Enter Chicago's Joyce Foundation, a senior board member of which was one Barack Obama.

From Fox News:

Obama served as one of 12 directors on the Joyce Foundation board from July 1994 until December 2002, according to a Joyce foundation spokesman. But it was only in 2000 and 2001 that the foundation gave money to the Climate Exchange -- funds deemed by the exchange itself to be fundamental to its successful launch, and in fact to its early survival.

Having survived, thanks to the million-dollar bailout from Obama and the Joyce Foundation, the Chicago Climate Exchange went on to merge with Climate Exchange Ltd in 2006. Goldman Sachs took a 10% stake in the firm at the time and later increased its holdings to at least 19%. CCX is also 10% owned by Generation Investment Management, a firm founded and chaired by Al Gore and co-founded by the above-mentioned former Goldman CEO, Hank Paulson.

According to EnergyRisk.com,

"Goldman Sachs is a major trader of European Union allowances and is set to be a key player in the US emissions markets that are planned to start up at the end of the decade."

But the markets have to be created first.

Trading firms sometimes call themselves 'market makers' for creating the markets in which securities and other investments are traded. Goldman learned from the housing bubble that it could forego that risk by getting the U.S. government to take it for them. So, now Goldman is turning to Washington to do its bidding, specifically the Democrats in Congress and the White House that it expects to approve and sign cap-and-trade legislation. Democrats that Goldman has bought and paid for.

Taibbi writes that Goldman personnel -- it's not legal for the corporations, themselves, to make political contributions -- donated nearly four-and-a half million dollars to get Democrats elected last fall. And the Center for Responsive Politics (CPR)'s OpenSecrets.org reports that almost a million of that went to the man who helped keep the Climate Exchange alive back in 2000 and 2001, Barack Obama.

In fact, Goldman was Obama's largest private contributor and "was the biggest business donor to Democrats in 2008, according to a (CPR) report. Some 73 percent of Goldman Sachs's millions in 2006-08 donations went to Democrats," according to a March article by Kevin D. Williamson in National Review.

And Goldman wasn't alone. Sniffing the profits that Wall Street's biggest shark expects to make from the new market, other investment firms, like smaller sharks sniffing blood in the water, went all-in last year, too. According to OpenSecrets, investment and security folks shelled out $14,788,852 to Obama, while hedge fund personnel invested just over three million dollars on their man. Both figures are almost twice the amounts donated to the Republican candidate, John McCain.

Overall investment and financial institution personnel donated $87,965,961 to Democrats, or about 57% of their total donations, a sharp break from years past, when Republicans generally held a slight edge. The numbers are even more lopsided going into next year's congressional election with 66% of the money donated so far going to the cap-and-trade party.

These figures, of course, do not include donations made to certain PACS or 527's or George Soros's relentless efforts to get willing Democrats elected.

Taibbi accuses Goldman of riding from bubble to bubble, sucking all of the public's money it can from each bubble before moving on to the next. With Goldman's push for cap-and-trade, "now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet."

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) executives sold almost $700 million worth of stock since the collapse of rival Lehman Brothers last year, the Financial Times said on Monday.

The newspaper said that most of the stock sales took place while the biggest U.S. investment bank was bailed out by the government with $10 billion of taxpayer money, according to filings with the Securities and Exchange Commission.

A Goldman Sachs spokeswoman declined to comment.

Goldman executives sold stock worth $691 million between September 2008 and April 2009, more than the $438 million in stock sold between September 2007 and April 2008, when the average share price was substantially higher, the Financial Times said.

The stock sales peaked between December and February, when Goldman Sachs' shares traded near record lows, the newspaper said.

After Lehman Brothers collapse froze financial markets, Goldman Sachs was forced to convert into a bank holding company to have access to government funding, and received $10 billion of taxpayer money.

The bank also reported its first quarterly loss since going public in 1999. However, Goldman has managed to sidestep the worst of the financial crisis, which has caught rivals with much higher losses and massive asset writedowns.

Last month, the bank repaid the government the bailout funds, along with other big banks.

Goldman Sachs reported earnings of $3.44bn for the second quarter, driven by record revenues of $13.8bn. The firm, which paid back $10bn in taxpayer funds to the US government last month, earned $4.93 per share for the quarter, up from $4.58 a year ago and $3.93 for the previous quarter.

Had it not been for a $426m dividend payment made in connection with the repayment of government funds, Goldman would have earned $5.71 per share for the quarter.

“While markets remain fragile and we recognise the challenges the broader economy faces, our second quarter results reflected the combination of improving financial market conditions and a deep and diverse client franchise,” Lloyd Blankfein, chief executive of Goldman Sachs, said in a statement.

Among business lines, Goldman’s revenues in fixed income, commodities and currencies (FICC) business continued the strong trend established in the first quarter. After a slow first quarter, Goldman’s equities business posted strong results for the three-month period, generating $3.2bn in revenues.

The firm also recorded a gain of $948m from the sale of a stake in the Industrial and Commercial Bank of China.

Goldman’s investment banking franchise, which posted lacklustre results in the first quarter, surged during the period, jumping 75 per cent to report revenues of $1.4bn.

The Goldman Sachs results come as the FT reported on Monday that executives at the bank sold almost $700m worth of stock following the collapse of Lehman Brothers last September, according to filings with the Securities and Exchange Commission. Most of the sales occurred during the period in which the investment bank enjoyed the support of $10bn from the troubled asset relief programme.

US banks are expected to produce healthy second quarter earnings with a boom in equity and debt issuance helping offset continued losses on toxic assets. The strong performance in trading and underwriting in the first quarter is expected to be exceeded in the three months to June.

According to Dealogic, banks and other financial groups raised $89bn in equity via 92 deals in the second quarter, the highest number of deals on record and the highest dollar volume for a year. And second-quarter equity issuance of $259bn was more than three times the $71.3bn raised in the first quarter.

The completion of the US government’s stress tests set off a flurry of activity on Wall Street, with financial institutions reaping large fees for helping rivals raise equity to plug capital shortfalls and repay federal aid.

Last month Goldman Sachs repurchased the preferred stock it sold to the US Treasury through the capital purchase programme and earlier in the quarter it raised $5.75bn through a public offering of common stock.

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression.

In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it." Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.

Aug. 4 (Bloomberg) -- Sergey Aleynikov, the former Goldman Sachs Group Inc. computer programmer charged last month with stealing sophisticated trading software, is in talks with prosecutors to resolve the case, according to court papers.

Prosecutors and Aleynikov, 39, have agreed to delay the deadline for filing an indictment against him, to allow plea negotiations to go forward, Assistant U.S. Attorney Joseph Facciponti said in an affirmation filed with the U.S. District Court in Manhattan yesterday.

The government requested a 14-day extension “to determine whether a disposition is possible prior to indictment,” Facciponti said in the court filing.

Aleynikov was arrested July 3 and charged the next day with theft of trade secrets and transportation of stolen property in foreign commerce. At Aleynikov’s July 4 arraignment, Facciponti said that the alleged theft is the “most substantial” that Goldman Sachs can recall. Aleynikov is free on $750,000 bond.

The proprietary code, worth millions of dollars, lets the firm do “sophisticated, high-speed and high-volume trades on various stock and commodities markets,” prosecutors said in court documents. Facciponti said a person misusing the code might be able to “manipulate markets.”

Plea Discussions

In yesterday’s filing, Facciponti said that he and Aleynikov’s lawyer, Sabrina Shroff, began discussing a possible plea deal on July 7, the day after Aleynikov was released on bail.

“The negotiations have not been completed and we plan to continue our discussions,” he said in the court filing.

Aleynikov, who lives in New Jersey and holds dual U.S. and Russian citizenship, was arrested July 3 after arriving at Liberty International Airport in Newark.

Aleynikov spent four hours with a Federal Bureau of Investigation agent after his July 3 arrest, Shroff said in court last month. He told the agent that he had done nothing wrong, authorized prosecutors to seize his personal computers, and said he hadn’t known the server he was using was in Germany, she said.

Facciponti said at the arraignment that Aleynikov transferred the code to a computer server in Germany and that others may have had access to it, a claim that Aleynikov denied.

Statement to FBI

Aleynikov told the FBI agent he had logged into Goldman Sachs’s computers through remote access from his home and sent encrypted files to a repository server with the URL identifier svn.xp-dev.com, according to a copy of his FBI statement in court files.

Xp-dev.com is run by London resident Roopinder Singh, who describes himself on a blog linked to the site as a trading systems developer working in London’s financial services industry.

Aleynikov told the agent the files he sent to Singh’s server “have been not shared with any person or corporation” and that it “was not my intent be involved in any malicious action.”

Aleynikov studied applied mathematics at the Moscow Institute of Transportation Engineering before transferring to Rutgers University, where he received a bachelor’s degree in computer science in 1993 and a master’s of science degree, specializing in medical image processing and neural networks, in 1996, according to his profile on the social-networking site LinkedIn.

Before joining New York-based Goldman Sachs, Aleynikov worked for about eight years at IDT Corp., the U.S. vendor of prepaid calling cards, where he led the team responsible for developing routing systems, according to the profile.

The case is U.S. v. Aleynikov, U.S. District Court, Southern District of New York (Manhattan).

Former Goldman Sachs Group Inc. computer programmer Sergey Aleynikov was found guilty of stealing the firm’s trade secrets by appropriating part of a high-frequency computer source code on his last day at work.

Aleynikov went on trial Nov. 29 in federal court in New York on charges of violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. He faces as long as 10 years in prison on the espionage charge and five years for the interstate transportation charge.

U.S. District Court judge Denise Cote set sentencing of Aleynikov for March 18. He and his lawyer both declined comment. He will be under home confinement and electronic monitoring, Judge Cote ruled.

Aleynikov, who is a naturalized U.S. citizen, holds dual U.S.-Russian citizenship, his lawyer Kevin Marino said in court.

Cote directed that Aleynikov limit his travel to the Southern and Eastern Districts of New York. Jurors left the courthouse after the verdict and all declined comment.

Cote also ordered that Aleynikov surrender all travel documents and directed that three financially-responsible people come back and sign his bond. He left court accompanied by family members and declined comment.

Assistant Manhattan U.S. Attorney Rebecca Rohr, in her closing statement on Dec. 9, told jurors that Aleynikov was a “thief.” On his last day of work at New York-based Goldman Sachs in June 2009, Aleynikov uploaded hundreds of thousands of lines of source code from the firm’s trading system, she said.

Circumvented Security System

He circumvented Goldman Sachs’s security system, sent the code to an outside server in Germany, and later compressed and encrypted the code, Rohr said. Aleynikov took the code with him to a meeting with his new employers in Chicago in July 2009, she said.

“He had a cheat sheet -- the codes from Goldman Sachs that he needed to get started with for a trading system” at his new employer, Rohr said. “He wanted to make it seem like he’d written the code himself. He was a programmer who stole the answers to the test.”

After taking Goldman’s software, Aleynikov executed a program to cover his tracks, prosecutors said. If he thought the codes were open source and should be publicly available, “why did he then encrypt it?,” Rohr asked jurors. “So that no one, like him, could access the code,” she said.

While Aleynikov may have broken a confidentiality rule of Goldman Sachs, he didn’t commit a crime, said his attorney, Kevin Marino.

‘Not a Crime’

“He violated the policy, OK, but that’s not a crime,” Marino told jurors. “A crime is when you act to harm the victim and benefit yourself.”